- November 26, 2022
- Posted by: Gavtax gavtax
- Category: Small Business Tax
Nearly $46 billion of the IRS’s extra funding for the next 10 years is earmarked for enforcement or investigating and auditing returns to collect unpaid tax dollars. That goal is to hire and train revenue agents to scour returns filed by individuals, corporations, and partnerships.
On one hand, owing to Biden’s Inflation Reduction Act last April, the $80b funding boost envisions the IRS hiring approximately 87,000 employees next year in 2023, which include auditors, technology specialist and customer service representatives.
But the figure doesn’t account for an enormous number of aging employees – an estimated 52,000 — who the IRS says will be eligible to retire or will resign within the next six years.
It all means competition for talent. Here are the talent acquisition facts:
- That the number of employed accountants and auditors fell by 17% between 2019 and 2021( AICPA, 2022)
- That the number of students graduating with an accounting degree continues to drop and was down nearly 9% in 2020 compared to its peak in 2012 (AICPA).
- Assuming that the agency deploys all that capital to hire agents, it will continue to have a hard time in the near term. It’s not like” Hey, I am waiting to get into the IRS.”
- The IRS would be competing for private sector accountants who get paid more.
- CPAs/ Enrolled Agents are not generally not attracted to a government job and certainly not attracted to statutory salary caps.
- The argument that the CPAs and Enrolled Agents have a hard time finding good quality tax staff stands true as on date. Why does the IRS think it’s going to be able to find good talent?
Nearly $46 billion will go to enforcement, while some $34 billion will go to improving the IRS’s Flintstones-style system.
The latter chunk will fund upgrades of IRS computer systems, some of which date to the Kennedy era, make internal operations more efficient. Also, improve the IVRS menu for taxpayers to reach out to the IRS via phone.
The backlog of unprocessed paper returns — more than 21 million as of last June, according to the Taxpayer Advocate Service, the IRS’s official watchdog — exceeded that of the prior year.
It’s too be seen if the upcoming tax season will churn out an equal if not more amount of unprocessed returns for next year.
Audit rates have been declining for a decade. In 2021, the audit rate was 0.4% vs in 2011, they were 10.5%.
How will the $46b out of the $80b funding be used? Or where will more than half the funding be diverted towards?
- Biden has said that the increased funding won’t target people who earn less than $400,000.
- Taxpayers who transact using cash apps and online marketplaces such as PayPal, Venmo, eBay, Airbnb, Vrbo, Zelle etc. The idea is to track transactions made more than $600 using any of such platforms and for which a 1099 was either not issued or received. (I’ve mentioned it a couple of times in my previous newsletters as well.)
- Another area would be to target crypto holdings. There is a little-known crypto law that can turn ordinary investors into felons. (Will talk about it in my next newsletter).
- High income earners with partnerships, trusts, S corporations, private foundations, and large gifts.
- Small businesses, gig workers and cash-intensive operations like restaurants are likely in cross hair.
“These are the people who are really going to be hit the most,” official sources claim. “You don’t need 10,000 agents to go after the billionaire tax class because there aren’t that many billionaires.” AICPA, 2022